DoD News

News Article

Military Retirement Changes Explained

By Jim GaramoneAmerican Forces Press Service

WASHINGTON, Sept. 27, 1999  Military retirement reform often headed the list of concerns when Defense Secretary William S. Cohen spoke to service members. Retirement was also a top priority for the Joint Chiefs of Staff when they testified before Congress last fall.

The fiscal 2000 Defense Authorization Bill would make retirement reform a reality, but not a simple one. Congress overwhelmingly approved the bill Sept. 22, and it now goes to President Clinton for signature.

The retired pay reform in the bill gives a choice to service members subject to the Redux retirement system -- all those who entered the service on or after Aug. 1, 1986 -- who reach their 15th year of service beginning in 2001.

First choice: They can join the pre-Redux retirement system. This so-called "High-3" system gives service members 50 percent of their basic pay averaged over the highest three years before retiring after 20 years of service. So, for instance, E-7s retiring after 20 years of service would take their total basic pay for the highest or, probably last three years, average it, and then receive 50 percent of that in retired pay. For those past 20 years, a straight multiplier of 2.5 percent per year of service, up to a maximum of 75 percent would apply. Also, the annual cost of living adjustments -- COLAs -- would be fully indexed to inflation as measured by the Consumer Price Index as opposed to CPI minus 1 percent currently calculated for Redux.

Or, second choice: Eligible service members subject to Redux can take a taxable $30,000 lump-sum bonus, agree to complete at least 20 years of service and choose to remain in the Redux plan with the lesser annual COLA. The bonus, which is immediately payable, can be used any way the member wishes.

Which option is better depends on the individual, said Navy Capt. Elliott Bloxom, DoD director of compensation. "It's the members' responsibility to weigh the options and decide whether they want a higher monthly income for the rest of their lives or whether they need the money now," he said.

"The particular circumstances that members find themselves in could drive them to the $30,000 option," Bloxom said. For instance, he noted, members may want to buy a house or they may have educational requirements. Some may feel they can invest the money and earn even more than if they retired under the High-3 system and if so, they must assume full responsibility for their success or failure, he noted.

Members choosing the $30,000 bonus would receive the money within 60 days of their decision. If they don't serve the full 20 years, they would have to pay back the unearned portion at the rate of $6,000 per year.

The first group of service members will face this retirement decision in February 2001, Bloxom said. Once members reach the 14-and-a-half year service mark, they have 180 days to decide which option to select. Their choice is irrevocable.

Service members perceived Redux as unfair. Redux, a 1980s effort to reform the military retirement system, affects roughly two-thirds of the force today. Under Redux, members retiring after 20 years of service would receive 40 percent of their high-three average basic pay. Under Redux and its predecessor, the pay percentage goes up with longer service until both systems reach a maximum of 75 percent at 30 years.

Redux, a product of the Cold War, was designed to encourage fewer service members to stay for 20 years, but more of those who stayed for 20 to remain in service until 30 years. With today's different missions and members' perceptions, however, officials found Redux actually discouraged service members from staying even 20 years.

"In 1986, people were practically guaranteed a 20-year retirement as long as they continued to perform," Bloxom said. "With the force management practices put into effect for downsizing in the early 1990s, people reaching mid- career could no longer be sure they'd be allowed to continue to 20 years. We determined it's more important to provide the 50-percent-of-basic-pay benefit so people at the 10-year point could see that staying in would be worthwhile."

Service members facing the retirement choice should consult financial counselors and personnel managers before deciding, Bloxom advised. DoD plans to put up a Web site soon offering interactive retired pay computers to help service members make their decisions, he said.